Weekly Commodities Wrap

Chinese Steel Capacity Cuts Fuel Iron Ore Rally

Gold

The yellow metal was lower once again this week, printing its fifth consecutive losing week, as the US Dollar climbed higher on global geopolitical tensions. With the Fed having reaffirmed its commitment to continuing its tightening program this year, and data continuing to print firmly, USD has been enjoying a renewed rally over recent weeks after taking a pause over the early summer.

The market is now less concerned about the impact of Trump’s trade policies on the domestic economy and is instead focusing on the rates story which is propelling USD and weighing on Gold. Interestingly, this is distinct from what we are seeing in other currencies such as GBP where the political story is dominating rates and acts as the main market driver. For now, Gold seems poised for further declines as the market continues to build its USD upside exposure.

After breaking down through the December 2017 low of 1235.95, Gold is now challenging the July 2017 low of 1205.29 where prices are currently stalled. If prices can break this level, the next major structural support is all the way down at 1122.13. To the topside, any retest of the 1235.95 level should see sellers step back in. Immediate downside bias will only be alleviated if prices can sustain a beak back above the December 2017 low.

Silver

The price of Silver fell for a ninth consecutive week this week, tracking the moves seen in Gold, as a resurgent US Dollar dominates the market landscape. While Silver prices have been plummeting, some investment banks have been noting the potential for higher prices in the medium-long term due to increased demand from the auto sector as electric vehicles grow in popularity. For now though, these forecasts seem to be doing little to inspire any immediate demand.

Silver is now consolidating below the 15.65 – 15.80 level broken support which should now find sellers if retested. Focus remains on a run down to the next major technical support levels with the 2017 low at 14.1327 the main objective, with the rising trend-line from 2015 lows coming in just ahead of the level.

Copper

The red metal softened again this week, now down over 18% on the year as the combination of a stronger US Dollar, weaker Chinese equity prices (now down around 20% on the year) and elevated uncertainty around the US / China trade war continues to sour investor sentiment towards the industrial metal. Copper has been hit hard by trade war concerns as forecasts for domestic demand in China (largest global consumer of copper) have been revised lower. Worryingly, the decline in Copper comes despite news that workers at BHP Billiton’s Escondida mine in Chile have voted to go on strike. Strikes at the site last year were a key driver in the Copper rally yet so far, the news is having on upside impact on the metal.

For now, Copper is battling it out around the 2.767 broken mid-2017 high. While prices traded very heavily into the level we have seen some stalling and consolidation suggesting profit taking at the very least by some players. For now, though, focus remains on the further downside with the 2.443 level the next key structural level to watch. To the topside, any retest of the 2.960 level should see sellers step back in.

Iron

Iron ore bucked the trend seen across the broader commodity complex this week, rallying strongly in response to a fresh crackdown on pollution by Chinese authorities which has seen officials shutting narrowing steelmaking production capacity in the country. Iron has been relatively immune to the investor uncertainty that has weighed on other metals such as copper. To put this in perspective, while copper has fallen around 15% since June on the back of the escalation in the US / China trade war, iron has risen around 9% and is now pushing the $70 level for the first time in six months.

The $64 – $69 range which has persisted in iron over the last four months has now been breached to the topside which should encourage momentum players and speculative buyers keeping the focus on the further upside.

With over 6 years’ experience analysing currency markets, James is now a well-known industry analyst focusing on price action trading and fundamental drivers. Beginning as a private retail trader, James developed a strong interest in understanding the fundamental aspect of the market before pursuing technical trading capabilities which he now uses to identify opportunities over a short-term horizon. Alongside his market experience, James is also IMC certified having achieved the qualification to help further his understanding not only of the markets but the industry as a whole.

James has a strong interest in both fundamentals and technicals and uses both forms of analysis in generating and executing trade ideas, with trades generally lasting from a few hours to a few days.

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